Monthly Archives: March 2012
In a March 16, 2012 Chicago Tribune Article titled “When good deals go bad, tips to keep your real estate transaction on track” Kari Richardson gives a few appraisal strategies to help keep a deals on track.
The following is an excerpt from that article:
After languishing on the market for months, a buyer has finally signed a contract to purchase your home. Think congratulations and Champagne are in order?
Or try this scenario: After months of open house appearances and weekend dates with your Realtor, you’ve finally found a place you’d be proud to call home and signed a contract to buy. Think you’ve arrived at the finish line? Maybe, maybe not. Survey data from the National Association of Realtors found that 33 percent of its member agents reported a contract failure in December, up from 9 percent in December 2010.
The statistic highlights a new truth of a topsy-turvy housing market: It ain’t over till it’s over. Jittery buyers, a glut of short sales, financing hurdles and an imbalance of power between buyers and sellers mean the difficulties of selling a home extend well beyond the time a contract is signed. It used to be unusual for real estate contracts to fall through, said Naperville real estate attorney Dan Collander, who’s been practicing since 1979. Although he doesn’t keep a formal tally, he estimates that 5 to 10 percent of his deals now fail to close for one reason or another. The buying or selling finish line isn’t a signed contract; it’s closing day, when the property formally changes hands.
The strategies Kari mentions regarding real estate appraisals are:
Before closing day, the home being purchased is appraised by a certified professional. And in today’s up-and-down real estate market, appraisals sometimes come in at less than the agreed-upon sale price.
This can create friction between sellers and their buyers, who typically don’t want to pay more for a home than its appraised value, McAuley said. Buyers also may not have enough cash on hand to make the purchase, since the appraisal affects the amount of financing they can get.
McAuley heads off trouble by being on hand when the appraiser visits a property she’s sold, armed with facts about the home and information about comparable listings. Since she frequently sells condos, she makes sure to point out, for example, if her property includes a parking spot when similar listings do not. These steps, she said, help ensure a property is appraised at fair market value.
To read the full article click: http://articles.chicagotribune.com/2012-03-16/classified/ct-home-0316-deals-derail-20120316_1_home-inspection-sellers-buyers/2
To Permit or Not to Permit, by Lee Lansford
OK, it isn’t Shakespeare, but, it is something of interest— and concern—to licensed appraisers in Illinois. The concern begins with an appraiser accepting an unusual assignment condition.
An AMC, acting on behalf of a lender is demanding that appraisers exclude from the Gross Living Area areas of the subject residence, additions to the original construction unless it is proven that the additions were legally permitted.
We must understand that what is asked of the appraiser is not couched in terms of a guideline; this is a requirement of the appraisal assignment with the clear implication that it’s my way or the highway. Though this demand is specific to GLA, similar demands have been made regarding decks, basement finish and whatever else may require a permit issued by an agency of government.
Actual Scenario: The subject has an addition to the original construction. The appraiser is required to ask the occupant or conduct research to determine and disclose whether or not the addition was completed with a permit. If the occupant attests that either there was no permit or has no knowledge of such a permit, the appraiser is to explain this in the appraisal and is not to include the addition in the GLA. Primary Issue: The market gives (or doesn’t give) value to a property feature. The competent appraiser considers what is, and what is not, significant in the development of a credible opinion of market value.
In many communities, an addition (i.e.,this could be bedrooms in what once was the unfinished attic) to GLA is not closely monitored by the local governmental agency and the market has virtually no awareness of whether or not an addition was completed via a permit process. There are other instances where noncompliance with the permit process may result in a minor cost for correction. In both of these situations, properties are regularly bought and sold and the question of the permit is a nonissue. If the appraiser were to exclude an addition from GLA where the market recognizes the addition as GLA, would the resulting opinion of value be market value?
The short and easy answer is—no.
Finally, there are jurisdictions where the question of whether or not an addition was legally permitted is a matter of great significance and something for the appraiser to carefully consider and analyze. But, even here, no matter where the appraiser’s analysis might lead, the demand from the AMC remains an unacceptable assignment condition. The demand is inappropriate in that it interferes with the appraiser’s development of the appraisal and, therefore, adherence to USPAP (and Illinois License Law).
In all instances, it is the appraiser who researches and analyzes the market. The appraiser has the responsibility of developing and communicating a credible appraisal in compliance with professional standards. The appraiser cannot allow an unacceptable assignment condition to interfere with the development of a credible appraisal.
Also, let’s review the very first line of the URAR’s Statement of Assumptions and Limiting Conditions: The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. It doesn’t say may not. It clearly states will not. Given that the appraisal is to be made as is and the appraisal may be headed to the secondary market, the question is, how can the appraiser communicate an as is opinion of market value when certain elements of the property are excluded? If you answered that the appraiser can’t do that.—you are correct.
Given the intended use of the appraisal, an appraisal of a physical segment (or, rather, the exclusion of a physical segment) is not appropriate. Similarly, employing a hypothetical condition is not an appropriate option. In addition to the overall inappropriateness of the demand by the AMC of the appraiser, the AMC must also consider a provision of Illinois’ AMC Law: Sec. 160 (a)…Appraisal management companies shall not interfere with adherence to the Uniform Standards of Professional Appraisal Practice or the Real Estate Appraiser Act of 2002 or a subsequent Act by individuals licensed under the respective Acts. In summary, the AMC’s demand of the appraiser is an interference with the appraiser’s compliance with professional standards. In other words, both the offer and the acceptance are unacceptable.
Note: This article was reprinted from the IllinoisAppraiser newsletter :
The Lake County Chapter of NAIFA presents Appraiser Liability Issues-How to Protect Yourself, with Presenter Charles R. Franklin, Attorney, Monday, March 5, 2012.
Charlie has been a longtime advocate for appraisers, providing guidance, assistance and advice on various appraiser related issues. He has appeared before the IDFPR, many Illinois courts as well as the Appraisal Institute on behalf of his clients.
Lunch and Presentation – $25 per person
*This is NOT a CE offering.
401 N. Rt. 21 (Milwaukee Ave.) Gurnee, IL 60031– 847-599-8533
Seating is limited – RSVP Now! (After 3/2 – call for availability)